In an article on reportonbusiness.com, it appears that Calgary leads the nation in new listings (along with Western Canada) and also sales declines.
“By contrast new listings soared to their highest recorded level at 154,217 units in the first quarter, led by Calgary, Edmonton and Vancouver.”
…
“On a year-over-year basis, sales volumes fell in 16 of the 18 major markets for which data was available, led by a 35.9 per cent drop in Calgary and a 29.8 per cent decline in Edmonton.”
Most bullish specuvestors and the real estate “value” chain will pump many reasons for buying. Alberta’s infallible natural resources based economy is the most commonly used ”empty” validation for entering into a lifetime of debt. If Alberta’s economy is hyped to be the most vibrant and strong, then why are sales volumes the worst in Canada?
When will people understand the key principle in a marketplace is affordabibilty. It’s no longer about the economy when house prices have risen past the sustainable threshold. The “invisible hand” of the market is slowly proving this fact.
If you still believe in a balanced marketplace, you’re dreaming in technicolor.
A potential scary/sobering reality is that Calgary may become the epicenter for the real estate crash in Canada.
Updated News Articles:
Canada’s Housing Boom “Officially Over”
Just Bought A House? Don’t Read This
Alberta House Price Boom Dying Down
Calgary Home Sales Plummet
Housing Demand Declines In Calgary
Stretched buyers fuel boom in housing
Engine behind the country’s housing boom has been increasingly leveraged first-time buyers
Alberta mortgage debt reaches $60B
Housing woes hitting home
Posts
It’s over.
Housing boom ‘officially over’
Where are the bulls now?
I think Vancouver has the potential to be the hardest hit in this market downturn. At least Calgary has an economic base whereas Van seems almost a hollow city as it, from what I can perceive, seems based mostly on a service sector and home and condo construction.
Now that five condo developers have gone bankrupt and new listings are choking the market if you add in the job losses once the Olympics leave, and the house building ends, Vancouver is setting itself up for a huge fall.
Well, i still see “sold” stickers on for sale signs, even thought there are a lot of listings the minimum listing for the area I am interested in is $500,000 (and it’s a way out suburb!) and all kinds of mortgage companies are still advertizing how they can help me unlock the equity in my home. Oh ya, and some tradesmen I know are getting into the residential rental market because prices are “great”. If this bubble is deflating the leak isn’t that big. The air (cheap credit) seems to still be coming in faster than it’s leaking out.
At least in Florida prices had the good sense to fall when the bubble popped.
Nonpulsed,
Could it be possible that most of these real estate companies and mortgage companies are advertising because their business is slow? During the boom, I don’t recall them advertising as much as they have been now. You have to give it time. Remember, prices can’t stay this high with this inventory. If they do, all economists should ask for refunds for their University degrees.
beartruth,
It is possible that business is slowing, but i figure when electricians and plumbers are thinking it’s a good time to become a landlord while rents are yielding less than 5%, the bubble isn’t quite over. I think a lot of sellers are refusing to move the house unless they get what they “want” for it, and many will pull thier listings before selling for less. What we need is a good bout of foreclosures to kick things off but that has been slower to come in Canada than the US.
When electrician and plumbers think it is a good time to enter the market with the current numbers we have………in reality……..it is really time to run for the exits.
You can apply the same principle to the stock market……….when your mail carrier wants to give you hot stock tips……..call your broker and cash out.
Uneducated fools making big bets at the top of the bubble is a signal.
I read the BoC just cut rates again and the BoE and the Fed are making plans to actually intervene in the LIBOR rate setting process, so we might not be done yet! It might be pushing on a string but the politicians do not want to see anymoe declines in real estate prices, it seems no matter what the cost. So maybe the plumbers know what they are doing!
nonplused: I don’t think that the government can prevent the natural progression of the free market. The market will decide for itself which direction it will turn. Looking at the US as a case study, rates are cut and cut ad nauseum. Bush also adds a stimulus package and that results in nothing. Equilibirum will be reached – it’s inevitable.
rtj:
I generally agree that governments cannot change markets long term. But short term they can do all kinds of crazy things they think might work. In the student loan market in the US, the government is now loaning directly to students as the “free market” has pulled out of that business. The Fed is also buying up all the bad mortgage backed securities and that is definately having an effect in saving the dodgy banks.
One thing they can do is depreciate currency. If the dollar falls another 50%, who’s to say what a house is worth? You have to throw all the old valuations out the window. The BoC is definately doing all they can to make sure that if the US dollar goes down so does ours to keep our friends in Ontario and Quebec happy. We even hired one of thier Goldman Sachs guys to run the BoC for us and show us how to maximize the worthlessness of the Canadian dollar. So I dunno. I agree that house prices should go down but I think they may try to kill the dollar to save the loans instead. We’d be talking about pretty big wage inflation for that to work.
The housing bubble is a symptom of a bigger disease, cheap easy credit. It looks like the central banks of the world refuse to bite the bullet and raise interest rates instead they will punish the taxpayer through inflation and more spec bubbles like the commodity market. Oil is three times the price and has only seen an increase in consumption of 1.6%. That looks like a bubble to me.
If the dollar falls another 50%, who’s to say what a house is worth? You have to throw all the old valuations out the window
Wrong, because RE valuations depend on price/income and price/rent. So what if the USD falls 50% against the Euro? So have everyone’s wages and rents. The house is still yielding the same as before.
In fact, further declines in the USD are likely to put downward pressure on RE prices, because people will have to pay more for gas, food, etc. and will have less money left over for housing. We are seeing this already. Wage increases? You’re not going to see any during a recession, which the US is already in.
Good blog, just found it this morning.
I have been following the US bubble since 2004. People here now think that the US bubble popped and prices starting dropping immediately, but this is not the case.
Typically, prices would stop rising for a few months (6-12), while sales volumes decreased and inventories rose. There was no way sellers were going to lower prices because they were told by the Realtors to just wait for the “spring bounce”. Once once the famous “spring bounce” never came, did some sellers (not many) begin to lower prices, but only slightly (2% of 5%), which is really nothing considering prices doubled or tripled over the previous few years.
Only once the bond market for mortgages seized up (Aug 2007), did you start to see more significant price declines in the major bubble areas like South Florida or San Diego.
Point is, the bubble did not burst over night for those waiting for significant price declines, it took about 2 years from the peak until prices only STARTED to drop, and they are still dropping and may take a few more years before reaching a more sustainable level.
Those who say that the bubble hasn’t ended, or that it won’t end because prices are still very high, need to keep some historical perspective. This is not the stock market, and sellers are in denial and have an emotional attachment to high bubble-era prices. It may be another year before prices start to drop faster and perhaps 2-4 years before good value appears again in the marketplace. If potential buyers have a long term view and are patient, they will save lots of money by planning to buy a home in 2010 or so, rather than now.
If you have no patience and need to buy today, that’s fine too, just understand that we are probably beginning an era of declining prices over the next few years.
patrioptz,
I don’t agree with the arguement that a falling dollar has no impact on the nominal price of internal items like houses. I think it was the falling value of currencies and interest rates that caused the bubble.
The credit bubble seems to have manifest itself in bonds, oil, gold, wheat, stocks, everything! Student loans even! There was (and is) money everywhere, for everyone! Real interest rates are negative, as long as the assets you buy with the borrowed money keep pace with inflation it makes sense to borrow all you can (which is why people have been doing it.)
It is pretty clear that the policy of the US Fed right now is that there will be no nominal losses of any kind in any asset class, and the BoC is following suite. The US government has been a little slow out of the gates getting the bailouts arranged, but by fall it looks like US government agencies will be buying houses and renting them back to broke owners if necessary to prevent open market sales of excess inventory. In socialist Canada, people wouldn’t even think there was something wrong with that idea, so the policy will be even easier to implement once necessary. You just have to suggest that it’s an “affordable housing program” and the voters will eat it up, even though it’s really a massive bailout of the banks.
The alternative is to let a lot of loans go bad, and I don’t think the government has any stomach for that. In a gold backed economy that’s what you would get, ala the 1930’s, but with paper currencies you get inflation, and lots of it.
I don’t agree with the arguement that a falling dollar has no impact on the nominal price of internal items like houses
I didn’t say it had no impact, I said it was negative rather than positive, as you seemed to imply.
The USD and the housing prices have both fallen substantially over the past 2 years. Right?
How do people respond to housing bulls who say “the strong economy has propelled housing prices rather than cheap/easy credit. If easy credit was the reason, prices in Toronto & Montreal would also be through the roof.” I’m not buying this argument but tryingto test my thesis that the Calgary market is where the US housing market was in 2005. Thanks!
You have to actually understand the population densities in the areas you mentioned. Toronto is now crashing as well. Too much inventory. Alberta’s GDP does not sustain these house prices.
Fabian,
Thank you for your reply. I realize the US is in a much bigger mess than Canada but I’m tired of hearing the same bullish bullet points from the media and investment banks. It requires a lot of patience to not jump through the phone at some of these people. It’s very tough to re-inflate a bubble that’s bursting and inventory spikes won’t help the cause. Thanks again.
partiotz,
I agree that for the second half of 2007 & 2008 so far the USD and US house prices have sort of moved in tandem (both down), more so in 2008, but for 2002 – 2007 the correlation was the opposite. The more the dollar dropped, the crazier the house market. I contend it was the rediculous availability of credit that fueled both moves. So the question in my mind is only whether they can find a way to get the sheep borrowing again. If so, more dollar down, houses, well, stabalize maybe. If not then i agree the floor is a long way down and i don’t know what happens to the dollar.
Somehow i missed the point. Probably lost in translation
Anyway … nice blog to visit.
cheers, Yawn!!!
Yawn, you missed the point after all that? Is your mother proud?